International Tax Competition and the Deficit Bias

Arcalean, Calin

doi:10.1111/ecin.12358

“…It is interesting to put our main results in the context of the scarce literature on tax competition and public debt. As noted in the introduction, Arcalean (2015) is close to but different from our work. In his model government debt is always repaid.…”

Section: Case Iib: Willingness-to-pay Condition Is Binding In Only One Jurisdictionsupporting

confidence: 43%

Fiscal Competition and Public Debt

Janeba

¹

,

Todtenhaupt

²

2016

View full text Add to dashboard Cite

The existing theoretical literature on fiscal competition has to a large extent ignored the role of government debt as a determinant of taxes and productive public spending. We develop a simple model of fiscal competition with government borrowing. If a default on government debt is no option, initial debt levels play no role in fiscal competition. This neutrality result is overturned when a default is possible. A government that is constrained in its borrowing due to a possible default responds optimally by lowering spending on durable public infrastructure, which in turn induces more aggressive tax setting. A rise in exogenous firm mobility reinforces the link between legacy debt and fiscal competition. Our model may help explain the observation that highly indebted countries in Europe have decreased corporate tax rates over-proportionally. Our model may also be useful for evaluating decentralization reforms in which the power to tax firms is devolved to lower levels of governments which differ in their initial debt levels.

show abstract

“…While we consider our mechanism to be relevant, it is by no means the only channel through which legacy debt may matter. In interesting complementary work, Arcalean (2015) considers the link between tax competition and endogenous debt levels, both as functions of the degree of financial liberalization. In contrast to his work, we emphasize the role of default which appears to be relevant in many situations.…”

Section: Resultsmentioning

confidence: 99%

“…There are two exceptions. Arcalean (2015) analyzes the effects of financial liberalization on capital and labor taxes as well as budget deficits in a multi-country world where countries are linked through capital mobility. Financial liberalization works similar to an increase in firm mobility in our setup.…”

Section: Introductionmentioning

confidence: 99%

Fiscal competition and public debt

Janeba

¹

,

Todtenhaupt

²

2018

Journal of Public Economics

11

1

0

View full text Add to dashboard Cite

The existing theoretical literature on fiscal competition has to a large extent ignored the role of government debt as a determinant of taxes and productive public spending. We develop a simple model of fiscal competition with government borrowing. If a default on government debt is no option, initial debt levels play no role in fiscal competition. This neutrality result is overturned when a default is possible. A government that is constrained in its borrowing due to a possible default responds optimally by lowering spending on durable public infrastructure, which in turn induces more aggressive tax setting. A rise in exogenous firm mobility reinforces the link between legacy debt and fiscal competition. Our model may help explain the observation that highly indebted countries in Europe have decreased corporate tax rates over-proportionally. Our model may also be useful for evaluating decentralization reforms in which the power to tax firms is devolved to lower levels of governments which differ in their initial debt levels.

show abstract

“…On the other, this profit shifting can be replaced by relocating R&D activities and then it does not affect the EATR for the future. Capital mobility is an important factor related to the tax planning a factor which is demonstrated by recent studies (Arcalean, 2017;Bretschger & Hettish, 2002).…”

Section: Resultsmentioning

confidence: 93%

“…Griffith et al (2014) mention one important aspect of intellectual property and its relation to tax planning: the fact that intellectual property shows the greatest mobility in a set of assets. Mobility as an important factor in terms of tax planning is also mentioned by Arcalean (2017) and Bretschger & Hettish (2002). This mobility is the key factor for tax planning because multinationals can easily and quickly move these assets to another country where the legislation enables them to have lower effective tax rate.…”

Section: Theoretical Backgroundmentioning

confidence: 90%

Tax Competition and IP Boxes after the Appliction of the Modified Nexus Approach

Jedlička¹

2018

JOC

2

0

View full text Add to dashboard Cite

This article deals with intellectual property (IP) boxes as an important factor in tax competition and tax planning. IP payments are used for profit shifting within a group of companies to lower their tax burden. One of the latest important developments in the use of IP boxes is the changing attitude of the OECD and its nexus approach, the application of which influences taxation within an IP box, especially the treatment of expenditures. This paper focuses on the situation regarding IP boxes after the implementation of the modified nexus approach, with an emphasis on changing the tax burden. These changes affect tax planning, thus managers need to know how they affect the overall tax burden of a company's investments. As a measure of these changes, the effective average tax rate (EATR) was selected. This study concentrates on three countries which have applied this approach: Hungary, the Netherlands and the United Kingdom. The results indicate that there is a new dependence after the application of the modified nexus approach: the structure of IP expenditures. The implementation of nexus approach makes the statutory income tax rate important also for IP income, and it causes a higher tax burden on IP income in the case of a small share of IP qualifying expenditures. A significant importance of the statutory corporate tax rate for the taxation of IP income is shown by changes in EATRs related to IP income after a reduction in corporate tax rates in Hungary and in the United Kingdom in 2017.

show abstract

International Tax Competition and the Deficit Bias

Cited by 9 publications

References 34 publications

Fiscal Competition and Public Debt

Fiscal Competition and Public Debt

Fiscal competition and public debt

Tax Competition and IP Boxes after the Appliction of the Modified Nexus Approach

Contact Info

Product

Resources

About